That Burger’s Gonna Cost You

Feeling a little sticker-shock after eating at your favorite restaurant lately? Following nearly half-a-century of record low prices, Americans are experiencing something folks in much of the rest of the world have been enduring for the past couple of years: rising food costs.

Now 3 to 4 percent tastier.

That burger and shake is gonna cost you more from here on out.

While food-service industry watchers have been warning about this for some time, the United States Department of Agriculture pretty much confirmed that last month with its food price outlook for 2011 and 2012. Food purchased in restaurants, according to the Consumer Price Index, is expected to rise 3 to 4-percent over the year while groceries purchased for consumption at home are expected to rise between 3.5 and 4.5-percent over the same period.

Take the cost of pork, for example. According to the USDA, pork prices are 8.5-percent higher than they were last year at this time. Dairy is more than 7-percent higher than this time last year, and produce is rising, as well. An interesting side note: beef prices are falling as I write this because cattle-ranchers throughout much of the U.S. are being forced to sell off their herds because of drought conditions across the country. That temporary reduction in consumer prices won’t last for long, though.

While a number of causes might come into play here, one in particular is hitting the restaurant industry particularly hard: its own success. A growing middle class around the world, coupled with a growing demand for convenience and restaurant foods, is putting a serious crimp in the world’s supply of commodity foods. Over the past decade, many American quick-service companies – they prefer “quick service” to “fast food” – have begun expanding overseas to fill the demand of newly emerging markets in places like China and India.

We haven’t seen much impact from that until now. Even as commodity prices were increasing, and exports of American-produced commodities to foreign markets increased, decreasing the availability of those commodities here in the U.S., restaurateurs were reluctant to raise prices in the midst of a worsening economy. Consequently, many chains began offering specials to keep their cash-strapped customers coming in but that could only go on for so long.

“The shifting reality is one the nation’s quick-service restaurants can no longer overlook,” noted trade journal QSR Magazine in its August issue. “Some may alter prices; some may explore more sustainable, savvy buying programs; and others may simply hope the world’s supply-and-demand scale finds its equilibrium.”

That may take a while. Earlier this year, marketing research firm Blue Shift predicted a full 5-percent increase in menu prices before 2011 is finished but noted, too, that price increases probably won’t contribute much at all to overall profitability. While prices may rise as restaurants try to recoup their costs, overall profitability may fall, Blue Shift said, by as much as 10 or 11-percent.